Indian Economy, TLP-UPSC Mains Answer Writing
Q. 1. “MSMEs are key to employment generation and inclusive growth yet face persistent structural challenges.” Discuss the major bottlenecks faced by MSMEs in India and examine the effectiveness of recent policy interventions aimed at addressing them. (150 words, 10 marks)
Introduction
MSMEs are growth engines of the Indian economy, contributing 30% to GDP, 49% to exports, and employing over 11 crore people (Annual Report, Ministry of MSME, 2022–23). They are crucial for equitable growth, grassroots entrepreneurship, and regional development.
Body
Key to Employment Generation and Inclusive Growth
- Labour-Intensive Sector: MSMEs create four times more jobs per unit of capital than large enterprises (Economic Survey 2020–21).
- Geographic Spread: Promote balanced regional development, especially in semi-urban and rural areas.
- Women and SC/ST Empowerment: Schemes like Stand-Up India encourage underrepresented groups in entrepreneurship.
- Support to Informal Sector: MSMEs offer livelihood to a large informal workforce, aiding in poverty reduction and inclusion.
Major Bottlenecks Faced by MSMEs
- Credit Crunch: The credit gap is ₹25 lakh crore (IFC Report, 2018); banks perceive MSMEs as high-risk.
- Delayed Payments: Over ₹10,000 crore in dues remain unpaid by PSUs and large firms (CII Report, 2022).
- Low Formalisation: Only around 1.3 crore MSMEs are registered under Udyam out of ~6 crore total.
- Technology and Skill Gaps: Outdated machinery and unskilled labour reduce global competitiveness.
- Prevalence of Dwarf MSMEs: As per Economic Survey 2018–19, firms older than 10 years with low productivity dominate the sector, blocking growth and job creation.
Recent Policy Interventions
- Emergency Credit Line Guarantee Scheme (ECLGS): Disbursed over ₹3.6 lakh crore to 1.2 crore MSMEs post-COVID.
- Udyam Portal: Seamless, Aadhaar-based registration has led to over 2 crore MSMEs being formalised (2024).
- RAMP Scheme (2022–27): ₹6,000 crore World Bank-supported initiative for productivity and export readiness.
- Trade Receivables Discounting System (TReDS): Enables quicker invoice settlement through fintech-led platforms.
- MSME Act Reforms: Proposals to decriminalise minor offences and introduce time-bound payment enforcement aim to ease compliance and protect working capital.
Successes So Far
- Enhanced Formal Credit Access: Share of institutional lending to MSMEs has increased post ECLGS.
- Improved Registration and Data: Udyam has helped build a real-time MSME database for targeted policy.
- Boost to Digital Adoption: Over 1.5 lakh MSMEs onboarded on Government e-Marketplace (GeM), increasing public procurement access.
- Increased Participation in Exports: MSME share in exports rose from 48.5% in 2020 to 49.5% in 2023 (DGFT data).
Way Forward
- Implement Payment Enforcement Mechanisms: Strengthen the SAMADHAAN portal and introduce statutory penalties for delayed payments to MSMEs.
- Adopt Cluster-Based Strategy: As per U K Sinha Committee (2019), promote credit, technology, and skill development through cluster models.
- Improve Access to Formal Credit: Deepen fintech-banking partnerships and expand CGTMSE coverage to high-risk but viable MSMEs.
- Upgrade Technology and Productivity: Provide targeted incentives for Industry 4.0 adoption and enhance tool room support in manufacturing hubs.
- Build Integrated Policy Architecture: Establish a unified MSME digital platform for registration, compliance, finance, skilling, and export facilitation (Economic Survey 2020–21).
Conclusion
MSMEs hold the key to sustainable and inclusive growth, but require continued reforms in finance, regulation, and technology. A dynamic, digitally integrated MSME ecosystem is essential for India’s $5 trillion economy vision.
